Job Loss Hits Harder In Latest Recovery

Evidence of crisis in American manufacturing

For Immediate Release: August 30, 2004

Contact: Debi Kar, 202- 387-5080      

The frequency of job loss and the resulting costs to displaced workers have been much greater in the current recovery than in the comparable period following the 1990-91 recession. Workers in the manufacturing sector have been particularly hard hit, according to a new study from the Center for Economic and Policy Research. These findings help explain negative perceptions by workers towards today’s labor market and account for the importance of the jobs issue in the 2004 elections. This new report by economist and CEPR Senior Research Associate John Schmitt, entitled “The Rise in Job Displacement, 1991-2004: The Crisis in American Manufacturing,” examines Displaced Workers Survey (DWS) data recently released by the Bureau of Labor Statistics.

This paper compares evidence on job displacement in the 2001-2003 period, as the economy was recovering from the most recent recession, with evidence from the recovery following the prior recession in 1991-1993. Despite a lower average unemployment rate in the current recovery (5.5 percent, compared to 7.1 percent in the 1991-1993 period), the frequency and cost of job displacement have risen substantially.

In the period from 2001 to 2003, about 5.3 million workers or 4.0 percent of the work force were displaced from "long-tenure" jobs (those held three years or longer). This compares with a displacement rate of 3.6 percent, or 4.5 million workers in the period from 1991 to 1993.

Further, the manufacturing sector is suffering from crisis levels of displacement. In the three years from 2001 to 2003, almost one in ten manufacturing workers (9.8 percent) was displaced from a job held for at least three years. The longer-term toll of displacement is even larger. Using data covering the years 1991 to 2003, the report estimates that between 17 percent and 26 percent of all manufacturing workers were displaced at least once from a long-tenure job.

The economic costs of job displacement are high and rising. At the beginning of 2004, almost 30 percent of all workers who had lost a long-tenure job sometime during 2001-2003 had still not returned to work, a rate 4.0 percentage points higher than the corresponding figure a decade earlier. By 2004, two-thirds (66.3 percent) of the displaced workers who had found a full-time job were being paid less than that they had been at their prior job, up from 64.0 percent ten years earlier. Over one-third (36.4%) of the re-employed full-timers in 2004 had taken a pay cut of 20 percent or more at their new job.

Manufacturing workers bear an even greater burden of these economic costs. By the start of 2004, about a third of displaced manufacturing workers still had not returned to work, a figure 5.6 percentage points higher than the corresponding rate for workers in the service sector.

Displaced, full-time manufacturing workers also took bigger pay cuts when they found new jobs. In 2004, almost three quarters (73.2 percent) of re-employed full-time manufacturing workers experienced a real-wage cut at their new job, compared to only 62.9 percent of service sector workers. Nearly 40 percent of manufacturing workers saw their inflation-adjusted weekly earnings drop 20 percent or more at their new job, compared to about 35 percent of service workers.